Public Banking Goes to Pot

Can the cannabis industry help launch the nation’s first public bank in nearly a century?

By Jeremy Lybarger, from High County News

| Fall 2017

Steve DeAngelo, co-founder with his brother Andrew DeAngelo of Harborside Health Center in Oakland, Cali., says their dispensary handles more than 20 million dollars in cash annually.Photo by James Hosking

Crime haunts the edges of the cannabis industry, as it does any underground economy.Photo by Getty Images/Zombiefriez

In October 2016, a couple from Philadelphia traveled to Sebastopol, Calif., a quiet outpost some 50 miles north of San Francisco, to buy pot. They’d arranged the deal beforehand, but at some point during the hour long transaction, the mood soured. Gunfire shattered the mild night. When it was over, two men were dead, a woman was critically injured, and 100 pounds of marijuana and $100,000 to $200,000 in cash were reportedly missing. The killers remain at large.

Crime haunts the edges of the cannabis industry, as it does any underground economy. Sebastopol’s local newspaper reports that seven of the 26 people murdered in Sonoma County since 2013 died during marijuana deals. “People get robbed all the time,” says Andrew DeAngelo of Harborside, a dispensary in Oakland, Calif. Although 29 states and the District of Columbia have legalized marijuana in some form, it’s still federally classified as a Schedule I drug alongside heroin and LSD. And that means, as Last Week Tonight host John Oliver noted, that “legal marijuana businesses have struggled to get bank accounts because at the federal level, they are still seen as criminal enterprises.” Banks and credit card companies blacklist cannabis businesses. Many dispensary operators have no choice but to stash money in home safes bolted to the floor. Security guards are hired and surveillance cameras installed. Armored cars deliver tax payments in suitcases and duffel bags stuffed with cash, a public safety liability that Oakland City Councilwoman Rebecca Kaplan laments as “spectacularly stupid.”

Now, Kaplan and activists in Oakland are inching toward a potential solution: a city-owned public bank that would service a chunk of California’s $7 billion cannabis industry and support the local economy without having to rely on Wall Street. The idea has recently packed community forums and sparked interest from neighboring Bay Area mayors. If it succeeds, Oakland will become the second place in America—and the first in nearly a century—to establish a public bank. Stacy Mitchell of the Institute for Local Self-Reliance, a community development nonprofit, predicts that “once one place does it, other places are going to follow much more rapidly.” The endgame is both a boon to the cannabis industry and a new economic model in which communities can call on local banks to fund infrastructure and low-interest loans.

The 98-year-old Bank of North Dakota is currently the country’s sole public bank. It operates as an extension of the state itself—managed by the governor, attorney general and agriculture commissioner—with a $4.3 billion loan portfolio and $7.4 billion in assets. There are no branches or ATMs, since its aim is not to compete with local banks but to partner with them by expanding their lending capacities. The institution’s annual reports read like socialist case studies: funding for schools, daycare, veterinary clinics, dairy farms, low-interest student loans, and infrastructure projects. The bank has been an unlikely success in a conservative state. In 1997, for example, the Red River in Grand Forks flooded, triggering a fire and property losses totaling more than $3.5 billion. The Bank of North Dakota, then led by future Republican governor John Hoeven, suspended mortgage and student loan payments for six months after the disaster—a courtesy almost no Wall Street behemoth would extend.

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Interest in public banks has seesawed over the years, but it spiked after the 2008 financial crisis and subsequent Great Recession. Occupy Wall Street intensified grassroots campaigns for financial reform. In 2011, a California bill that would have authorized a task force to study the feasibility of a state-owned bank passed the legislature, only to be vetoed by Gov. Jerry Brown. More recently, activists in Santa Fe, Philadelphia, and Vermont have rallied for public banking, and New Jersey Democratic gubernatorial candidate Phil Murphy has pitched a public bank in that state.

Marc Armstrong, former executive director of the Public Banking Institute, saw an opportunity to market public banks to cannabis businesses during the run-up to California’s passage of Proposition 64 this past November, which legalized recreational use of marijuana. Armstrong argues that Oakland is a prime candidate for a public bank because it’s a charter city awash in cannabis money. Once a public bank opens there, a regional network could follow that would be a blueprint for Colorado’s $2.4 billion cannabis economy and the $1 billion-plus economies in Washington, Nevada and Oregon. Brian Vicente, executive director of Sensible Colorado, a nonprofit pushing cannabis reform, cites marijuana’s $3 billion economic impact in his state as one reason that a bank serving the industry would be “greeted with open arms.”

“We make the case that this is an economic issue,” Armstrong says, “and we can use states’ rights arguments, which is what this is all about, because this is a constitutional matter.” And the Constitution is the reason why a public bank could accept cannabis deposits whereas a private bank cannot. Armstrong points to the 10th Amendment, which reserves for states any power not given to the federal government. In states where cannabis is legal, a public bank would also be a branch of the government and could invoke Article 10. The argument is actually wonkier than that, but as Armstrong notes, “If the state is silent on the matter, which they are in regards to public banks, there’d be no conflict” as to legality.

Besides being a constitutional matter, it’s also one that could force the federal government to clarify financial regulations around cannabis. In 2013 and 2014, the departments of Justice and the Treasury respectively issued guidelines as to how banks should handle marijuana money. Joe Rogoway, an attorney in Santa Rosa who represents the cannabis industry, says that most banks found the compliance rules too “onerous” and spurned cannabis business altogether. He now advises clients to open multiple accounts at different banks so that if one gets shut down they have backups.

“(Banks) are leaving a tremendous amount of money on the table by not dealing with us,” says DeAngelo of Harborside, a dispensary that pulls in more than 20 million dallars annually. He adds that because cannabis is still an all-cash economy, cities are tangled in a sort of catch-22. “Tax dollars are being spent one way or the other. You can either spend it with the police or you can spend it on a public bank and solve the problem.”

Momentum behind public banks is surging, particularly given a White House determined to roll back environmental regulations, defund sanctuary cities, and crack down on immigration. Communities across the country want banks to defend their values. On March 14, San Francisco’s Board of Supervisors unanimously passed a resolution calling for the city to divest from financial institutions that bankroll the Dakota Access Pipeline. This follows similar divestments in Seattle, Wash., and Davis, Calif., as well as a national “Defund DAPL” campaign.

“Everybody, whatever their silo is, they see the potential benefit of the (public) bank,” says Susan Harman, an activist who helped found Friends of the Public Bank of Oakland in October 2016. Her group has received endorsements from the California Nurses Association, the Oakland Green Party, and a local tenants’ union, among others. “We’re getting broad support because everyone can see that having control over our finances, instead of sending them off to Wall Street, will be a benefit.”

If public banks are so appealing, why haven’t more cities or states opened them? For one, the process can take years, with a long growth curve before the bank can build its capital base and make profitable loans. In addition, Wall Street isn’t keen to relax its stranglehold, and lobbyists for big banks do what they can to nix talk of public banking as a viable alternative. Finally, and perhaps most challenging, there’s a lack of political will, especially in states like California, where the world’s sixth largest economy is humming. “We’ll have to keep pushing it,” says Kaplan. “Just because right now people are excited about it doesn’t mean those who care about this issue can go to sleep.”

But if another public bank is going to open anywhere in America, odds are it’ll be in Oakland, which has historically taken the lead in cannabis policy. It was the first city in the state to permit and license dispensaries, and the first to pass a dedicated cannabis tax. Now, the city is considering a 10-week feasibility study to evaluate the costs and timeline of establishing a public bank there. Once that’s complete, Harman hopes to start laying the groundwork for Oakland’s public bank by January 2018 (“People laugh hysterically when I say that,” she admits).

“I think it’s a big ask,” says Dale Gieringer, an Oakland-based cannabis activist. “It would be a whole lot easier if Congress would simply reschedule marijuana.” Nonetheless, he’s cautiously optimistic that a public bank could be a workaround.

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Constituents have a choice, says Kaplan: Either be depressed about a federal government that enables Wall Street’s worst excesses, or push communities to take control of their own financial destiny. “Not everything needs to be in (Trump’s) hands,” she says. “It’s a chance to put our money where our values are.”

Jeremy Lybarger is a journalist in San Francisco. His work has appeared in Rolling Stone, Mother Jones, Esquire, The New Republic, Pacific Standard, and other outlets. Reprinted from High Country News (May 15, 2017), a bi-weekly newspaper that reports on the West’s natural resources, public lands, and changing communities.

Share your thoughts.

Mister Chip

11/20/2017 6:04:01 PM

This is a good article with an intriguing solution to a problem. But alas, like so much information put out by the left media, it descends into a diatribe about President Trump, the political right, ad nauseum. It’s as if an idea can’t stand on its own merits unless it includes some sort of jab at the political right.I might note that the 40% of the population that doesn’t agree with the partisan politics of the author and publisher might find some common ground on public banking. The problems that the cannabis industry is running into is also being experienced by gun dealers, although to a more limited extent. If the standard for doing business with a public bank is “any business that is lawful” then you might find some surprising consensus that the need exists.